2 Factors That Will Determine If Your 2026 Social Security COLA Is Too Small

If you are collecting Social Security benefits, your benefits amount will increase in 2026. In fact, your monthly benefit is expected to rise by 2.8%. That's the cost-of-living adjustment (COLA) the Social Security Administration recently announced.

A 2.8% COLA in 2026 is bigger than the 2.5% COLA that Social Security recipients were eligible for in 2025. But is it big enough? Here are the two factors that will determine if the upcoming cost-of-living adjustment is fulfilling its purpose.

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1. Inflation trends

The purpose of the Social Security COLA is a simple one. Social Security benefits must be increased over time because of inflation, and COLAs ensure that this happens regularly.

Since prices increase over time, benefits have to increase over time so they don't lose buying power. The increase is based on average changes to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which is intended to track inflation. The COLA is calculated based on average changes to the CPI-W during the third quarter of the year.

So, the first big test of whether the COLA does its job or not is going to be whether retirees actually see prices go up by the 2.8% that the COLA is set at.

Unfortunately, chances are good that this will not be the case. The problem is that retirees tend to spend differently than urban wage earners and clerical workers, and they typically devote more of their money to specific categories of spending that see higher-than-average inflation.

Because of this, the COLA often falls short, and retirees lose ground. In fact, the Senior Citizens League estimates that Social Security benefits have lost 20% of their buying power since 2010. There is every reason to believe that will be the case again, and that the COLA is going to fall short in 2026 as it has done many times in the past.

COLAs can also fall short of inflation surges after the raise is calculated. As mentioned above, the formula uses third-quarter data from the CPI-W. If there are rapid price increases in the coming months, perhaps because of the effect of tariffs, then retirees could find themselves with major shortfalls in the coming year, as they won't get another raise until 2027.

That's not good news for retirees, many of whom already struggle to make ends meet on the benefits they have.

2. Healthcare costs

The next big factor that will affect whether your COLA is enough to help you actually maintain your standard of living is what happens to healthcare costs.

Seniors, in general, spend a significant amount of money on medical care, and medical care costs tend to increase faster than inflation. That's one of the reasons it is a problem that the CPI-W is used to calculate COLAs, instead of a pricing index that better tracks the spending habits of the elderly.

It's also important to realize that most retirees who are on Medicare have their premiums taken out of their Social Security checks. As a result of this, if Medicare premiums increase, a good portion of their COLA will disappear before the money even gets to them. So, when a Medicare premium increase is substantial, retirees may not even get much of a raise at all.

Right now, it looks like that is going to be the case for the upcoming year. The Medicare trustees are projecting that the premium increase will be very substantial in 2026, with premiums expected to increase by $21.50 to $206.50. If that projected increase becomes reality, much of the COLA that retirees get is going to go to this one expense alone.

Unfortunately, that means that the COLA isn't likely to help seniors do much to cope with all the rising costs they're going to face next year. Retirees could find themselves having to pull more money from a 401(k) or other investment accounts to maintain their standard of living because of this issue. That could be a problem, as seniors can't afford to spend the money in their retirement plans too fast.

Retirees need to be aware that their COLA may not be enough next year to truly maintain their standard of living. They should carefully consider whether cuts need to be made to preserve their future financial security over the long term.

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